The US Dollar has recently been underperforming against the other major currencies. Friday was a different story, though, with the dollar rising sharply following Janet Yellen’s hawkish speech. This sudden dollar strength has shuffled around a couple of structures in the FX market and we definitely need to reassess the technicals in order to properly trade the markets this week. For example, the picture of the USD/CAD was pretty bearish until Janet Yellen’s speech on Friday. Now it might still be bearish, but it is definitely much less bearish than it was before Friday’s bounce. To me, nothing has changed on the AUD/USD. It still remains a pair that we can sell. Unfortunately, the conservative entry I wrote about last week was not triggered, but at least the aggressive entry was successful. Those of you who used this setup are sitting on a decent profit at the moment. Let’s look at the AUD/USD:

AUD/USD

AUD/USD Daily Chart

As you can see Friday’s trading volume was above average. The candle that formed on Friday is also a bearish engulfing candle which is a good confirmation of the market’s directional intentions on the pair. The probability of some bearish follow through on this pair is very good, and if we consider the two countries’ diverging monetary policies, it is fair to say that the US dollar is likely to overpower the Aussie over the near to medium term.

In the chart above you can see that price has broken through the first important support level (the blue box). The next important support level (the green box) is about 90 pips away from the current price. I reckon that the decline will at least reach this level. The 200 day moving average (black moving average) is about 50 pips below this support zone. This is a very important moving average that might offer some support to the pair. Look at this 4-hour chart:

AUD/USD 4 Hour Chart

Here we see a new swing high that is a lower high, as well as a new lower low that has been formed on Friday. This is an important characteristic of a downtrend – the formation of lower highs and lower lows. I also like the fact that Friday’s daily candle closed firmly below the 20 EMA (the red moving average on the chart above).

Now perhaps you are wondering how you can make some money out of this. Look at the daily chart again:

AUD/USD Daily Chart

The idea here is to wait for a better price to sell the pair at. If we would enter at the current price we would need a rather large stop loss which is not desirable. Patience is very rewarding when trading forex. By waiting for a better price to enter at we can use a tighter stop and aim for a larger target.

Let’s look at some other pairs:

USD/CHF

USD/CHF Daily Chart

Although Friday’s bounce was very impulsive, this pair might meet some resistance at the 200-day moving average. This is where the previous swing high was formed. The current price is very close to the 61.8% retracement (the horizontal orange line). This could also be a level where price could meet some resistance. Of course, we don’t know if the US dollar will strengthen more in the coming week, but if it becomes exhausted soon, the green box on the chart above might be a zone to keep an eye on. I would not place a pending sell order here, as I first want to see how price reacts to this level before entering a trade. I would like to see the price get rejected by this zone, perhaps some wicks penetrating it, with the same candle that formed the wick closing below the resistance zone. I just don’t want to fight the current US dollar strength right now.

GBP/USD

GBP/USD Daily Chart

The pound also got beaten up by the US dollar on Friday. If we get continued US dollar strength tomorrow and during next week, this pair could offer some short trade opportunities. I would not enter a short trade before the pair has posted another daily close below the 20 EMA, though. I am also concerned that perhaps the pair has recently formed a double bottom that could act as powerful support.

Tomorrow is the bank summer holiday in the UK, which could reduce market participation somewhat. Tomorrow's economic calendar doesn’t really have something to be excited about. The only notable event is another speech by Janet Yellen which I don’t think would be a great market mover, though.

Good luck trading!